Chicago’s Urban Economic Development: An Incremental Work in Progress



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In recent weeks we have been rather busy writing a variety of articles for paying customers in accordance with established deadlines. Unfortunately, we were unable to update REAMS as often as it would otherwise have been. However, we’d like to share some of the other researched content with you. We hope you find some interest and/or enjoyment in it. Here’s today’s Chicago-specific post:

In this age of dwindled state and federal funding, the Chicago Stockyards have become a national model for urban economic development. – Quote!

The portion of this quote which, regrettably is true more often than not, is, “…this age of dwindled state and federal funding…”, and it succinctly depicts economic conditions in many of our nation’s poorest, low, and moderate-income neighborhoods. The quote was extracted from a December 1999 article in the GOVERNMENT FINANCE REVIEW titled, Urban Revitalization and Tax Increment Financing in Chicago.

The “GOVERNMENT” is the City of Chicago’s Department of Planning and Development; and the neighborhoods are, unfortunately, most often under-served by those empowered to bring about positive change in the form of revitalized development of housing, schools and businesses, as well as more jobs, positive growth and the prospect for continued prosperity.

However, as stated in the quote, the City of Chicago has created what has become a national model for urban economic development, and should be utilized in many other urban communities in need of such development. The national model referred to is Tax Increment Financing (TIF), a program which the state of Illinois first enacted in 1977.

TIF was considered an important community development tool for attracting the development that will generate new taxes. Unfortunately it took 12 years for the program to be embraced by city officials and fully utilized. This acceptance and utilization of the Tax Increment Program occurred when Mayor Richard M. Daley took office in 1989.

Tax increment financing is actually a technique for financing a capital project from the stream of revenue generated by that project. The “…advantage of using TIF over federal economic development money is that it allows for more project flexibility and local control”, and it was this program that provided the funding mechanism to clean up the stockyards and prepare land for redevelopment.

The Stockyards Industrial Park is now home to modern industrial facilities for companies like Culinary Foods, Inc., Luster Products, and OSI Industries, while a new retail center has brought stores and services to a once under-served area.

As is often the case with so many city and community initiatives, TIF was enacted after a drastic reduction of federal economic development funds. A similar effort for such an economic development is WECAN (Woodlawn East Community And Neighbors Inc.) which was founded by Mattie C. Butler, a 40-year Woodlawn resident and sister of Hall of Fame R&B singer/current Cook County Commissioner Jerry Butler.

WECAN quickly became a neighborhood and citywide advocate for rescuing at-risk and abandoned buildings, preserving an estimated 5000 units of housing in Woodlawn since its founding. Many of its programs – Abandoned Property Program, Vintage Homes For Chicago and Step-Up Housing – have become citywide models.


Along with TIF and WECAN, there is a Federal Housing Administration (FHA) program created specifically for the rehabilitation of one-to-four family residential properties, as well as mixed-use (consisting of residential and retail space in proportions set forth by the program) buildings. This program is known as HUD’s Section 203 (k) rehabilitation mortgage, which is administered by FHFA and insured by the FHA.

The 203k rehab loan permits a home buyer to finance a minimum of Five Thousand Dollars ($5,000) in the mortgage loan for completion of any repairs that are needed on the home s/he is purchasing, unless that home is a year old or less. Under the 203k program loans are insured up to approximately 96.5 percent of the lesser of appraised value before rehabilitation plus rehabilitation costs or 110 percent of appraised value after rehabilitation.

A 203k loan can be used to (1) finance rehabilitation of an existing property; (2) finance rehabilitation and refinancing of the outstanding indebtedness of a property; and (3) finance purchase and rehabilitation of a property. An eligible rehabilitation loan must involve a principal obligation not exceeding the amount allowed under Section 203(b) home mortgage insurance” (the standard FHA-insured residential mortgage program).

Due to recent changes in these programs please refer to HUD’s website at the link below for updated information: More about 203k financing or simply www.hud.gov

The programs mentioned in this article are by no means all there is to remedy some of the blight and dilapidation in many of Chicago’s neighborhoods and, indeed, neighborhoods all across this nation. There are other programs, including the Community Reinvestment Act (CRA), which should be utilized for the maximum benefit to every community in which commercial banks conduct business. Please learn more about CRA here: More Wiki CRA info

TIF was developed in Chicago and – as one of the most effective programs ever developed for the purpose it serves – has come of age in that city, although other cities have been encouraged to follow Chicago’s example.

A statistic which may best illuminate the success of Chicago’s TIF program is the calculation of private return leveraged from public investment. For every one dollar of public funds spent on TIF projects, the private sector has invested almost five and a half dollars. By the end of 1998, Chicago had invested a cumulative $526 million in TIF funds and benefited from $2.82 billion in private investment – Quote

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Building Blocks for the First Time Home Buyer


Building blocks for the first time home buyer outlines the entire process of home buying that a first time home buyer may benefit from in his/her preparation for home ownership. There are four blocks of preparation which can be described as Preliminary, Before, During and After the purchase.

In many home buying transactions the process will begin with the priliminary and before stages (preparing yourself to make the purchase, and finding a suitable home) as in blocks One & Two below; And during (the mortgage financing process as in block Three below.

Block four is treated a little differently because it occurs after the transaction closes, but it must have been initiated between blocks One & Two because a first time home buyer must decide on the specific mortgage type (whether it be a conventional, a FHA-type, or VA).

In the case a FHA 203k rehabilitation mortgage loan the mortgage clause in a purchase contract would have to indicate that 203k mortgage financing will be a condition of the purchase. The building blocks for a home-purchase include the following:

Block One Preparation (personal) – Things you can review in preparation for your home purchase, like;

  • Job – Length of employment, job security, and good to excellent prospects for continued employment.
  • Savings – Having put aside enough money for down payment, closing costs and at least 3 months reserves (one month reserve equaling one month PITI)
  • Credit – Reasonable to excellent payment history on all accounts, account balances at or below 50% of account limits and reduction in the number of accounts to six or below (including balance transfers if necessary).

Block Two Preparation (house) will include;

  • Searching for and selecting the best home for your money
  • Real Estate Broker – Interviewing brokers, including buyer’s agents, that you will make your purchase with (or through)
  • FSBO (For Sale By Owner) – Going it without a broker includes contacting the home seller(s), making your offer directly to him/her/them, preparing and making your initial offer, and setting up your contracting signing (things that a broker would usually do).
  • Mortgage Broker/Lender – Arranging your own mortgage financing through a lender of your choosing is a right bestowed upon you by federal law.

Block Three Preparation (mortgage financing) includes;

  • The mortgage type and lender selection is left to the buyer to decide without any undue pressure (from anyone else).
  • Mortgage Type – Generally your choices would be Conventional, PMI, FHA and VA
  • Mortgage Application – Depending on the lender you select this application could be done by mail, the internet or in person. It really depends on how much of the work you want to do.
  • Appraisal Report – Although you pay the appraiser’s fee, you do not get to select the appraiser. This is done by your lender; And while you are entitle to a copy of the appraisal report, many lenders do not release it before the closing and/or without a written request from you.

Block Four Preparation (finding a licensed and insured general contractor);

  • The contractor plays a key role in a 203k-financed home purchase.
  • Contractor’s Estimate – Required to provide the mortgage lender’s personnel with an amount to be financed into the mortgage.
  • HUD Consultant’s Work Scope – Required by HUD to inspect the home, keep the work estimate figures in line with reasonable market rates, and establish the required contingency reserve.
  • HUD Consultant’s Work Inspections – Also required by HUD to insure that work is being done without any extended stoppages (30 days or more), as well as to authorize release of funds to the contractor.

For more about FHA-insured financing, visit the HUD website

Humor or Irony:

If the government can’t run business, how come businesses always run to the government for a bailout when it runs into trouble? FHA-insured mortgages… Government-run for over 75 years! Lest we forget?


Smart Two03k Home Buying

Controlling the controllable

The circumstances which can lead to mortgage payment default are many; Some within a homeowner’s power to control and others are not. In the case of an event beyond the powers of a home owner to control, mortgage holders have been known to extend a helping hand by providing a grace period or temporary reduced payment until circumstances improve some normalcy is restored and the home owner can resume regular payments.

Events which qualify for this type of lender assistance may be illness, death, divorce, and in some cases, unemployment. In some rare cases, like a recession or governmental order, mortgage holders have provided similar assistance to their mortgage customers. However, when a default occurs which could have been avoided, there is little help or sympathy from the lender or anyone else, because proper steps to such avoidance were not taken by the home owner.

At the moment when a decision is made to purchase a home, several questions may enter the mind of the decision maker(s) and conversation topics probably range from affordability to property type and neighborhood. Generally, home shoppers are able to determine what they can afford to pay for monthly housing expenses, so the affordability factor is usually well thought out; and invariably they would have already decided on what type of home is suitable enough to meet their family’s needs, as well as where it should be located.

Home buyers at times insist on a professional engineers report, or in the very least, a professional property inspector’s report so that they could have a complete understanding of the property’s physical condition. Obtaining one of these reports (more home buyers opt for the inspection report based on cost, but the professional engineer prepares a more comprehensive report which is justifiably more expensive) equips a home buyer with any physical defects that may exist in the home and that’s the extent to which many buyers will go, unless there’s a glaring defect, in which case the transaction could be in jeopardy.

It is at this juncture in the transaction when every home buyer should make a decision to grasp control of a circumstance which have caused many a home owner to unwittingly default on mortgage payments. Unexpected repair of major working components in a home – heating/air conditioning, plumbing and electrical components, among others – have been known to create havoc with a family’s budget and as a result causes delinquency in mortgage repayments. This is the kind of controllable circumstance I refer to.

Home buyers can control the occurrence of unexpected repairs in the home they are purchasing by utilizing a special government program which is offered by many HUD-approved lenders. Home buyers would need to inquire about it at the time of purchase. I said special because it is my opinion that it is a truly special gift which enables the borrower to make a decision that could eliminate potential budget shattering, unexpected repairs far in advance of when they are likely to occur.

The HUD Section 203k rehabilitation loan helps home buyers accomplish this forward-thinking, intelligent method of home buying. The 203k loan program provides financing for needed repair/rehabilitation to a home in amounts ranging from five thousand dollars ($5,000) up to the maximum allowable mortgage insurable by the FHA. Repair costs are incorporated into the purchase mortgage based upon a contractor’s estimate and HUD consultant work write-up.

The loan closes, at which time funds for repair costs are placed in an escrow account; home sellers receive their net proceeds from the home sale; home buyers receive title to their new home; and repair work begins within thirty days of closing. The buyer is now assured that all repair work outlined in the HUD consultant’s report will be completed in a workman-like manner; is being paid for without huge chunks taken from the housing expense budget; and a particular circumstance has been eliminated as a potential problem that could otherwise create mortgage repayment default. It is a controllable which could be controlled by forward-thinking home buyers.

The 203k loan program also allow for home buyers to include up to an additional twenty percent above the maximum mortgage amount to finance the installment of solar energy panels. Solar heating has been shown to reduce energy costs in residential homes. For more about energy efficiency visit the energy efficiency website.


A message to followers and supporters of this blog:

Thank you for your support. We will continue working to provide the most relevant and useful information about current FHA-insured programs and related topics. Occasionally, we’ll post content from our other sites based entirely on its value to you. Please let us know what you think in the comments section. Thanks and God Bless!

Javeton

For more about 203k, please visit the HUD website. To find out if you qualify for 203k financing, visit a HUD-approved lender at http://www.unitednorthern.com/.

Humor or Irony?

If the government can’t run business, how come businesses always run to the government for a bailout when it runs into trouble?
FHA-insured mortgages, government run for 75 years. Lest we forget?